Three Key Components of Financial Literacy
Financial literacy is the confident understanding of concepts including saving, investing and debt that leads to an overall sense of financial well-being and self-trust. It starts by building basic knowledge of money matters, and while Americans could certainly improve on this score, they've made gains in recent years.
Although there are many skills that might fall under the umbrella of financial literacy, popular examples include household budgeting, learning how to manage and pay off debts, and evaluating the tradeoffs between different credit and investment products.
To be financially literate is to know how to manage your money. This means learning how to pay your bills, how to borrow and save money responsibly, and how and why to invest and plan for retirement.
According to the Financial Literacy and Education Commission, there are five key components of financial literacy: earn, spend, save and invest, borrow, and protect.
These steps are:
Financial literacy is important because it equips us with the knowledge and skills we need to manage money effectively. Without it, our financial decisions and the actions we take—or don't take—lack a solid foundation for success.
April is officially Financial Literacy Month, but you can pledge to take these 30 steps any time you're ready!
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Among the most relevant financial literacy topics are the following:
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The Five Foundations: The five steps to financial success: (1) A $500 emergency fund; (2) Get out of debt; (3) Pay cash for a car; (4) Pay Cash for College; (5) Build wealth and give.
Basically, the four walls are the things you absolutely must pay for to keep on living. As Dave Ramsey lists them, the four walls are food, shelter, basic clothing, and basic transportation.
You should save money for three basic reasons: emergency fund, purchases and wealth building. When it comes to saving money, the amount you save is determined by how much you have left at the end of the month once all of your spending is done.
It should be specific, measurable, action-oriented, realistic and have a timeline. Decide if your goal is short-term, mid-term, or long-term, and create a timeline for that goal.
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They mean taking money away from supporting your current lifestyle, and from how much you can put toward retirement. In short, they are self-sacrificing decisions, but if providing for your family is what financial success means to you, that's where your money should go.